Why Digital Transformation Needs a Heart

Editor’s Note: This article is one of a special series of 14 commissioned essays MIT Sloan Management Review is publishing to celebrate the launch of our new Frontiers initiative. Each essay gives the author’s response to this question:

“Within the next five years, how will technology change the practice of management in a way we have not yet witnessed?”

Three technology-driven forces are transforming the nature of management. Automation is making it more and more possible for companies to do work without humans involved. Data-driven management supplements intuition and experience with data and experimentation. Resource fluidity matches tasks to the people who can best perform them, whether inside or outside the organization.

Taken together, these three forces are helping leaders rethink the way work is organized and managed. Tasks that were previously considered the sole domain of humans — like handling customer requests, driving vehicles, or writing newspaper articles — can now be done by machines. Employees at all levels have the information they need to make decisions and adjust their practices. Computers can diagnose situations and identify challenges that humans don’t see. Real-time information makes it possible to run experiments rather than guessing what might work. Employees can self-organize, obtain help from experts inside and outside the organization to get a job done. And companies can manage fluctuations in their resource needs through outsourcing, whether through long-term relationships, hourly hiring, or gigs and piecework.

On the whole, these forces are a good thing. They will help managers to increase productivity, innovation, and customer satisfaction in the coming years. However, if you lead a traditional company, be careful not to let these forces push your management approach to extremes. Taken to their logical conclusion, the three digital forces could transform management for the worse. Accelerating resource fluidity could make all workers contractors, paid only when the company needs them and earning a living only by cobbling together many different gigs. Data-driven management could become Big Brother, evaluating employees’ every action, and hiring or firing people rapidly based only on the numbers. Automation could replace workers and constantly ratchet up the pressure on those that remain. If left unchecked, the three digital forces could transform the employment relationship into an emotionless market transaction — a logically interesting approach that could have negative long-term implications for both workers and companies.

This new employment vision is already starting to play out at some companies. Amazon.com Inc. has an intense, data-driven approach to managing people. As The New York Times reported in 2015, it hires only the best, pays them well, works them very hard, and regularly culls its workforce to remove those perceived as lower performing. Uber Technologies Inc. has a relatively small number of very talented, full-time employees, and it engages most of its drivers through contracts that adjust to meet minute-by-minute changes in market demand. Uber is now piloting a fleet of self-driving vehicles.

When making sense of fast-moving digital innovation, it can be tempting to see great born-digital companies like these as aspirational archetypes for management. Certainly we can — and should — learn a lot from these companies. But think twice before adopting every Silicon Valley management technique as your own. Most companies don’t have the resources to attract and pay the world’s most talented workers. And many high-performing workers would not be happy in transaction-based work schemes, preferring more security or better work-life balance instead. Traditional companies, even those in non-technology industries or less-than-sexy locations, can attract great people with the right combination of income, mission, and working conditions.

Beyond the simple question of finding employees, a question remains whether market-based employment contracts are the right kind of social contract for the typical business. These practices, which work well in some fast-growing digital companies, may not be as effective when growth slows or a disruption strikes. Paying people only for time spent on task reduces opportunities to foster innovation and employee cohesiveness. What’s more, such practices do very little to promote loyalty. Many Uber drivers work for its competitors too; they are Uber drivers only until a better offer comes along. Amazon is one of the industry’s most innovative companies, but it also has a reputation for high employee turnover. Loyalty helps companies to thrive when they cannot pay world-leading wages; employees work hard and create innovations because they believe in the company and its leaders. And when times get tough, loyalty is what helps companies keep their best people.

As a strong proponent of digital transformation, I do not want to discourage traditional companies from adopting digitally powered management practices. However, when building a vision for the future of your company, think of the digital forces as you would vitamins or prescription drugs: The right amounts, applied under the right conditions, can yield fabulous results. But using too much, or in the wrong conditions, can be poisonous.

To summarize, digital transformation needs a heart. In an age of digital innovation, leaders in every industry should strive to transform every part of the company, from customer experience to business models to operational management. But we cannot forget that it is people who make companies work. The vision of management in five or ten years should not be one where all employees are seen as contracted resources laboring under tight, machinelike supervision. It shouldn’t be a world in which automation squeezes workers — and managers — out of the system. It should be one where computers help employees to collaborate fluidly, make decisions scientifically, and manage better with automation than they ever could without it. In the long run, digitally savvy companies that engage the hearts and minds of employees will outperform those that treat people like machines.